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June 09, 2006
Corporate Shenanigans: Companies Dis Shareowners at Annual Meetings
    by Bill Baue

Home Depot exemplifies a phenomenon of companies manipulating annual meeting protocols to disempower shareowners, following in the footsteps of Weyerhaeuser, Whole Foods, and others.

The Home Depot (ticker: HD) annual meeting late last month is widely regarded as a nadir in corporate treatment of investors, as the company displayed its contempt for its shareowners with no-show directors, questions truncated by a one-minute timer, and vote results unannounced. The fact that the company subsequently promised to reform its behavior next year goes little way toward repairing its damaged reputation.

While this case is an anomaly, according to Charles Elson, director of the University of Delaware Center for Corporate Governance, it is unfortunately not a completely isolated event. In fact, it closely follows the scripting last year by Weyerhaeuser (WY), which stifled shareowners' freedom of expression by requiring written questions (widely viewed as a censoring mechanism), then apologized a few days after the annual meeting--and after the damage was done.

"I think it's quite arrogant, frankly--it's disrespectful to investors," Prof. Elson told "I don't take much stock in apologies, as actions speak louder than words--the fact that Home Depot shut out questions, that the directors didn't bother to show up--the company effectively limited their shareholders' ability to legitimately question management."

Tracey Rembert, coordinator of investor and corporate engagement for the Service Employees International Union (SEIU) Capital Stewardship Program, has been tracking such instances of corporate misbehavior throughout her career of shareowner activism.

"It isn't so much a widespread pattern as a see-saw effect," Ms. Rembert told "It tends to coincide with the defensiveness of executives who are already being targeted for particular issues."

At Weyerhaeuser, the target was poor environmental stewardship. At Home Depot, it's excessive executive pay, especially for CEO Bob Nardelli, who raked in $245 million since his December 2000 appointment while overseeing a stock slide of 12 percent as competitor Lowe's (LOW) stock price rose 173 percent.

"It is surprising that such shenanigans still happen at large companies post-Sarbanes-Oxley and the river of scandals--companies should be on better behavior, not worse," Ms. Rembert added.

Longtime shareowner activist Tim Smith, president of the Social Investment Forum (SIF), concurs.

"On the day that the Enron verdict was delivered, common sense would have dictated that Home Depot's directors should have been present and accounted for, ready to answer questions and engage with their shareowners," Mr. Smith told, referring to the jury finding Ken Lay and Jeffrey Skilling guilty of defrauding investors.

Mr. Smith is also senior vice president of socially responsible investing (SRI) firm Walden Asset Management, which filed a shareowner resolution asking the company to disclose workforce diversity data that received strong support of 36 percent. Shareowner dissatisfaction over executive compensation and company unresponsiveness even before the annual meeting fueled high votes for most of the resolutions. Four resolutions received more than 40 percent support, and a resolution seeking majority vote director elections received 56 percent support, prompting a company vow to implement the measure.

"We shouldn't lose sight of the fact that the real issue at Home Depot is the composition of the board and the compensation committee, and the way they lavished pay and benefits on Nardelli that wasn't deserved," said Rich Ferlauto, director of pension and benefit policy for the American Federation of State, County, and Municipal Employees (AFSCME). In protest over executive compensation, AFSCME campaigned to withhold votes from 10 of 11 directors, all of whom ended up receiving over 30 percent withhold votes. "Its clear shareholders understand this game and have had enough, so this kind of manipulation of annual meetings won't be tolerated anymore."

"I think the Home Depot board did what most other boards would like to do, though other boards know better than to be so transparent in their disdain for shareholders," Mr. Ferlauto told "Home Depot probably weighed this out beforehand: 'Either we'll take some heat for running the meeting this way, or we'll take more heat in the meeting, but because we have something to hide, it's worth it to us to take the heat afterwards.'"

Nell Minow, co-founder of The Corporate Library (TCL), joins Ms. Rembert, Mr. Smith, and Prof. Elson in pointing out that SEC regulations are essentially mum on annual meeting protocol.

"It's largely a matter of state law," Ms. Minow told "What redress is there--are shareholders going to make companies have their meetings over again?"

The one provision clearly stipulated by the SEC is that shareowners who file resolutions must present them at the meeting--which of course means that companies must allow this. Earlier this year, Whole Foods (WFMI) set a low-water mark by contravening this SEC mandate, disallowing investors from even presenting their resolutions before closing the vote.

Unfortunately, Home Depot, Weyerhaeuser, and Whole Foods are not alone in these antics.

"Two years ago, Target [TGT] said that the annual meeting was not the time or place for shareholder questions," Ms. Minow said. "That's like in the movie Love and Death when Woody Allen and Diane Keaton are in bed and he leans over to kiss her and she says, 'Please, not here.'"

Eerily, Mr. Nardelli's words echo Target's: "This is not the forum in which we would address your comment," he told a shareowner who asked what he would do to increase director independence. Even the length of the Target and Home Depot meetings in question coincided: a mere half-hour! And Ms. Rembert points out that Target also stifled questions from social activists and labor funds.

Likewise with Coca-Cola (KO) this year, according to Scott Klinger, research director at Corporate Accountability International.

"When we arrived at the annual meeting, shareholders who came in person were given red cards, while attendees representing shareholders were given yellow cards," Mr. Klinger told "Unlike past meetings where anyone who wants to speak can line up at a microphone and wait their turn, this year shareholders had to raise their colored cards and remain seated to await recognition by CEO Isdell."

"When the controversial resolution addressing labor abuses in Colombia came up, Isdell ignored a sea of waving yellow cards--he only recognized individuals who were in some way funded by Coca-Cola, to offer testimonials about what a fine company Coke was," Mr. Klinger continued. "Instead of shareholders discussing one of the issues that most threatens the company's reputation, we witnessed a clamp-down on democratic discussion, undermining shareholders ability to hold the corporation accountable."


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